In an interesting twist, Australia’s property investors now hold a record share of home lending despite an overall retreat in borrowing activity, as rising interest rates and cratering consumer confidence squeezed housing demand in the March quarter.
New data from property analytics firm Cotality shows total housing loan commitments fell 6.2 per cent over the March quarter, with the overall value of lending dropping 3.8 per cent; a significant pullback driven by back-to-back Reserve Bank rate hikes and a collapse in household sentiment following the outbreak of the Iran war in late February, which sent energy prices surging.
The analysis from Cotality’s Head of Research, Gerard Burg, found paradoxically, it is owner-occupiers, not investors, who have retreated faster, pushing the investor share of total loan volumes to a record 41.0 per cent, the highest level recorded since the series began in September 2019.
In value terms, the investor share reached 40.3 per cent, its highest since December 2016.
“Owner-occupiers led the retreat, but investors [were] not far behind,” Mr Burg said.
The quarterly volume of owner-occupier loans fell 6.9 per cent, compared with a 5.3 per cent decline for investors. In dollar terms, owner-occupier lending dropped 4.3 per cent versus a 3.0 per cent fall for investor loans.
First home buyers squeezed on loan size
First home buyers showed relative resilience in volume terms, but the picture was more mixed beneath the surface. While their numbers held up better than other owner-occupiers, the average new loan size for first home buyers actually fell by 2.6 per cent over the quarter — a reversal of the 1.6 per cent increase seen for other owner-occupiers.
Mr Burg attributed some of the relative volume resilience to the federal government’s 5 per cent Deposit Scheme.
The story varied significantly across the states. New South Wales, which holds the largest share of investor lending nationally at 43.9 per cent, led the decline in investor loan volumes, followed by Western Australia. By contrast, South Australia and Tasmania bucked the national trend, with investor lending volumes in Tasmania surging almost 74 per cent compared with the same period last year, though from a small base.
For first home buyers, the sharpest falls were in South Australia, down 6.1 per cent, and Queensland, down 5.8 per cent. Tasmania eased just 0.7 per cent and Western Australia fell 2.0 per cent.
Victoria continued to lead the nation in first home buyer activity as a share of total lending, with Melbourne’s relative affordability advantage and state tax policies — which tend to deter investors — supporting that trend. Western Australia has seen a notable pickup in first home buyer activity, while New South Wales continues to lag.
A market on the cusp of a downturn
The national housing market is already showing signs of turning. Dwelling values are contracting in Sydney, down 0.9 per cent on a rolling quarterly basis, and in Melbourne, down 1.5 per cent. Growth is slowing across mid-tier capitals, even as Perth continues to outperform with gains of 6.8 per cent, followed by Brisbane at 4.7 per cent and Adelaide at 3.5 per cent.
Mr Burg, warned that the worst may not yet be felt. Two of the three RBA rate hikes delivered so far this year landed in the March quarter, but the May hike, which could be followed by further tightening if trimmed mean inflation remains stubbornly above target, has not yet worked through the system.
“Demand is likely to soften further, as the full impact of the interest rate tightening (particularly the hike in May) has not yet been felt.”
Budget changes cast shadow over investors
The outlook for investors is clouded further by changes announced in this year’s federal Budget. The removal of negative gearing for purchases of existing properties is expected to weigh on investor demand and, by extension, new investor lending.
Cotality’s analysis noted that while some new investors might pivot to newly constructed homes — where negative gearing has been retained — investors have historically favoured existing dwellings and may now direct capital to non-property assets instead.
The economics are already challenging. Rental yields are sitting well below the cost of borrowing, and with interest rates potentially rising further, fewer investors in existing properties will be able to generate positive cashflow. That makes holding costs substantially higher and serviceability pressures more acute.
“Continued stretched affordability, renewed rising rates and tighter government tax policies are expected to drag on future investor activity,” Mr Burg said.
Total housing loan commitments in the March quarter stood at 139,794 in volume terms, with a value of $102.959 billion — both figures higher than the same quarter in 2025, reflecting the lingering benefit of last year’s rate cut cycle, even as the momentum from that period fades.
Source: Cotality Pulse Investors Report, May 2026. Data sourced from ABS Lending Indicators.